Navigating the maze of life insurance: Policyholder values explained

Last week, we delved into the world of insurance policyholder values, which often appear surprisingly low compared to the vast properties owned by insurance companies across the country.

Today, we embark on a journey to unpack the issues raised by policyholders and pensioners, particularly concerning hyperinflation and the currency conversion of their values.

It’s a story that intertwines financial complexities with the real-life impacts on individuals relying on these funds. Join us as we dissect these intricate issues and shed light on the profound implications for those navigating this challenging landscape.

The Calculation of Values: A Balancing Act

At the heart of the matter lies a fundamental question: how were these values calculated? Picture this: your pension or policy is backed by a variety of investment instruments, including equities and properties. Each asset has a US dollar value attached to it, making them tangible and quantifiable. The total US dollar value of these assets was apportioned to pensioners and policyholders (including active members of pension funds) based on their individual share of the Zimbabwean dollar assets.

This process wasn’t just a casual walk in the park; it was a meticulously crafted symphony of rules and due diligence, ensuring equity and fairness among all policyholders. Experts from various fields—actuaries, property valuers, auditors, and accountants—came together to piece this puzzle. The rigorous process required board approval, with the results ultimately presented to the Commissioner of Insurance. It was a colossal undertaking that demanded precision and transparency.

The Long Road to Conversion

Now, you might be wondering why it took so long to complete this conversion. The answer is simple yet multifaceted: the process was incredibly complicated. It required extensive due diligence to ensure accurate conversion and allocation of asset values to each policyholder. Imagine trying to solve a Rubik’s Cube while blindfolded; that’s how challenging this task was.

The economic environment at the time was anything but friendly. Hyperinflation wreaked havoc on the value of money, leading to a loss of value for all investors, including insurers. Despite their best efforts, insurance companies found themselves navigating a minefield of dwindling resources, striving to distribute the little that remained to a relatively high number of policyholders with claims on those assets.

The Reality of Low Values

One of the most pressing questions policyholders ask is, “Why are my values so low?” This inquiry often comes with frustration and confusion. The reality is that insurers were not immune to the harsh economic conditions that everyone faced. Hyperinflation struck like a thief in the night, robbing value from investments and shrinking the pot available for distribution among policyholders.

In stark contrast, many policyholders compare their payouts to those from the National Social Security Authority (NSSA) and government pension funds, which often seem more substantial. However, this comparison can be misleading. The amounts paid to policyholders and pension funds are grounded in a true valuation and allocation of asset values. NSSA and government pension funds are partially funded schemes that rely on contributions from currently active members, supplemented by tax revenues. This creates a different financial dynamic that can lead to higher payouts in certain cases.

The Myth of the Buildings

A common narrative among policyholders is the perception that insurers are hoarding enormous wealth, given their impressive portfolios of buildings and properties. “How can my pension be so little when you own all these valuable assets?” they ask. It’s a fair question, and here’s the crux of the matter: while buildings are indeed part of the assets considered in calculating pension values, the number of policyholders and pensioners with claims on those assets is relatively high.

To add some context, think of it like a pie. If there are numerous slices, each person gets a smaller piece. The amount of pension contributions made during an individual’s active membership, the length of that membership, and investment returns all play crucial roles in determining the final pension amount. The pie may look impressive, but when divided among many, the slices can be quite small.

The Currency Conversion Dilemma

When it comes to currency conversion, many policyholders have questions. “What exchange rate was used to convert my monthly pension amounts?” they might ask. The simple answer is that no traditional exchange rate was applied. Instead, the total assets backing the investments were distributed equitably among all policyholders and pension funds.

Why not use the traditional exchange rates? By the end of 2008, Zimbabwe was a whirlwind of fluctuating exchange rates—cash rates in billions and trillions, transfer rates, and the Old Mutual implied share price exchange rate were all in play. None of these rates were official or economically justifiable to use. Thus, the decision was made to avoid the confusion and stick to the equitable distribution of total assets.

The Future of Low Capital Values

For those with low capital values, particularly those on the verge of retirement, the outlook might seem daunting. What will happen to them after this exercise? Rest assured, they will still be offered pensions that can be supported by their capital values or full commutations within the limits agreed upon by the Commissioner and the industry.

Interestingly, some pensioners have been offered a single lump-sum payment instead of ongoing monthly pensions. This decision stems from the reality that the monthly pension amounts were so minimal that the administrative fees associated with processing them would become burdensome. It’s a pragmatic approach, albeit one that may be difficult for some to accept.

The Borrowing Conundrum

Lastly, a common query arises: “Why not borrow money from sister companies outside the country to pay decent pensions?” The answer is rooted in regulatory frameworks. Each company operates under the laws of its own country, which may restrict the remittance of funds outside national borders. Furthermore, each insurer must carry its own liabilities, ensuring that they can meet the needs of their policyholders without cross-subsidising, which could jeopardsze policyholders in other markets.

Conclusion: A Complex Landscape

Navigating the world of life insurance and policyholder values is akin to traversing a labyrinth. As we’ve explored, the journey is filled with complexities, from the calculation of values to the realities of hyperinflation and currency conversion. While the story is still unfolding, one thing is clear: understanding these intricacies is essential for anyone relying on insurance for their financial future.

As we look ahead, it’s crucial to remain informed and engaged.

The road may be bumpy, but with knowledge and patience, policyholders can better navigate the winding paths of their financial journeys. In this ever-evolving landscape, the promise of improved service and transparency is on the horizon, and only time will tell how this story will conclude.

For Feedback Contact Us At:Physical Address: 7 Lloyd Close, Ballantyne Park, Harare Website: www.loa.co.zwEmail: info@loa.co.zwLandlines: (+263) 242 884 628, 884 646